Covid-19 global pandemic shows why supply chain risk monitoring can help companies stay resilient in the face of disruption

LexisNexis Due Diligence Services, Compliance Solutions, LexisNexis BIS

Often, it takes a crisis to bring supply chain weaknesses to light. That's certainly the case with the Coronavirus, or Covid-19. Many companies have failed to adapt their risk management processes to meet the complexity of today’s global supply chains. As the Harvard Business Review recently pointed out, companies already faced serious disruption within this decade, following the 2011 earthquake and tsunami that struck Japan. "Almost nine years later,“ says the article, “it seems the lessons of Fukushima must be learned anew as many companies worldwide scramble to identify which of their “invisible”  lower-tier suppliers —those with whom they don’t directly deal —are based in the affected regions of China.“ In this blog, we‘re taking a closer look at how third party risk monitoring helps multinationals identify emerging supply chain risks to achieve greater operational resilience.

Supply chain risk multiplies as Coronavirus spreads

The Institute for Supply Management (ISM) conducted a special survey regarding the impact of Coronavirus and found that nearly 75% of companies in the U.S. have been disrupted and expect 

revenue losses as a result—and they aren’t the only ones. reports that calculations by Michael Essig, professor of supply management at the Bundeswehr University in Munich, found that “... a multinational company such as Volkswagen has 5,000 suppliers (the so-called tier-one suppliers), each with an average of some 250 tier-two suppliers. That means that the company actually has 1.25 million suppliers—the vast majority of whom it doesn’t know.“ The same article notes that the epicenter of the Covid-19 outbreak in China, Wuhan Province, is home to first and second-tier suppliers for at least five million companies worldwide.

Complex supply chains demand ongoing third-party monitoring

The 2003 SARS outbreak in China, as well as the earthquake and the tsunami that hit Japan in 2011, had a lasting impact on a number of manufacturers and subsequently the global economy. Since then, supply chain management has increasingly aimed at strengthening the resilience of their operations. While often seen as a simple buzzword, resilience proves quintessential for successful operation of supply chains worldwide. The current global health crisis underlines the need for ongoing risk monitoring of suppliers and identification of possible alternative or backup suppliers to build greater resilience into your supply chain.

The cascading impact of the global pandemic is clear:

  • Critical suppliers operating below capacity due to quarantines and staffing shortages
  • Delays in moving raw materials, as well as loading and shipping goods at ports of entry
  • Inability to meet production schedules due to supply shortages
  • Lack of inventory to fulfill current and future orders
  • Sagging sales revenues due to quarantines, social distancing and increased consumer anxiety about potential financial impact of extended work stoppages

The faults, currently made visible by COVID-19, lead to one important conclusion; information is key. It is impossible to identify possible vulnerable links in a supply chain without a detailed picture of it.

How does third party monitoring work?

By making use of natural language processing, machine learning algorithms and data analytics, third party monitoring solutions help companies trace and monitor critical suppliers on a global scale. This allows them to identify possible disruptions earlier to enable agile responses when problems surface—whether due to financial instability of a single supplier or a viral outbreak like we’re currently experiencing. Companies who invest in t supply chain mapping and ongoing third-party monitoring will benefit from greater resilience and a comparative advantage over less proactive competitors.

Since the outbreak of COVID-19, experts have seen a dramatic contrast between the responsive measures companies in the private sector have implemented. While a number of companies struggled to gather the crucial information necessary to swiftly adapt to changes and failures in their supply chain, industry competitors who had already mapped their supply chains and continued to monitor them were able to fast-track their responses. As the world fights to get control over Coronavirus, disruption remains in the foreseeable future. And it’s a good reminder that companies need to revisit their existing risk management practices and make third party monitoring a priority moving forward.